In a mail written to the company’s 2,100 employees, Zomato Media Pvt Ltd’s co-founder and CEO Deepinder Goyal has refuted claims made by HSBC Securities that said the food-discovery platform is worth half its $1 billion valuation. Goyal also said that the company’s investors were bullish about the business and were willing to back it further.
“…this report is an outlier, and there are enough analysts, VCs, and founders out there who have called us “the only defensible Indian unicorn”, and have said “there’s multiples more inherent value in Zomato” about us,” Goyal wrote in his letter.
HSBC Securities has reportedly marked down Zomato’s valuation to $500 million, half of what it was reportedly valued at the time of its eight round of fund raising around a year back. When contacted, HSBC declined to share the report saying that it did not publicly release company-specific reports.
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In a point-by-point e-mail, Goyal has refuted every claim made in the HSBC Securities report, and has said that Zomato is the leader in 18 out of 23 markets it is present in. “Also my thoughts on valuations — nobody who knows our business has marked down our valuations. In fact, our existing investors are bullish about us, and are willing to back us further, if needed. And they have categorically said that our valuations are justified,” Goyal wrote.
“Especially because we are more than doubling year-on-year, and the next year looks even more exciting for us. But external perceptions of valuations are determined by the state of the market, and the availability of facts to the person who is analysing these numbers,” he added.
According to Goyal’s letter, HSBC Securities has claimed that the US is an overcrowded market and Zomato will not be able to make inroads into the country. “HSBC, because it never spoke to us, doesn’t know that we didn’t acquire Urbanspoon for its US presence,” he said. He justified the company’s move to buy Urbanspoon saying that the acquisition was done for Australia and Canada, and said: “We are monetising the traffic in Australia already, and Melbourne and Sydney are already in the top 5 revenue generating cities for us across the world.”
Despite a strongly worded rebuttal from the Zomato founder, it is interesting to note that India’s food-tech industry, of which Zomato is one of the front-runners, is looking at a downhill situation according to industry experts.
An analyst with a domestic brokerage firm said that even though the reductions in valuations may be on paper, the Indian e-commerce players, especially in the food-technology segment need to worry about the low margins.
Several in the segment, including Zomato have downsized their operations over the past several months.
In October 2015, Zomato had laid off around 300 employees, alongside TinyOwl, which also handed the pink slip to over 260 of its staffers. Later in December 2015, the country’s largest food aggregator delivery platform firm Foodpanda fired 250-300 employees, representing approximately 15 per cent of its total staff strength.
The other segment of the food-tech industry that are the online grocery sellers have also bore the brunt of unsustainable business models, which trade off profit margins for business expansion.
Mumbai-based LocalBanya has, reportedly, closed down operations in December. PepperTap also ended its operations this month. Online grocery retailer Grofers had reportedly shut down operations in nine cities in January, and is also likely to add Kolkata to that list soon.